Lord Mackie of Benshie: My Lords, I thank the noble Lord for giving way. We appreciate the complexity and efficiency of the retail industry. What worries us in this case is that with an over-supply the price to the consumer is not falling. Therefore more is not being consumed and the natural process of recovery is not taking place.

Lord Graham of Edmonton: My Lords, the noble Lord makes a very good point. I am afraid that I am unable to speak to the detail because I am neither a practitioner nor a professional in this area. Reference was made earlier to the price of oil. It was said that oil was not strictly analogous to this case. It is not. However, when one hears the word "glut" one believes that automatically that should be reflected in lower prices. In the case of oil, for every 62 pence paid for a litre 50 pence is a tax that is imposed on the industry. We are all beneficiaries of that. We must be very careful about where we start and finish.

Over the past 10 years the price of goods in the shops has risen by 36.5 per cent. General inflation has risen by 50 per cent., but in real terms the price of retail goods has fallen by just under 14 per cent. Efficiency,

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innovation and competition all play a part. When one criticises the supermarket one must bear in mind that the consumer is not attracted solely by price but by the range of goods, their quality, the opening hours, the increased role of new or extra services and their quality and value for money.

I am aware that the noble Lord, Lord Mackie, has far greater experience of these matters. However, when one considers pigmeat, only parts such as the loin and the steak are particularly attractive. But the person who has produced it may feel that he is entitled to sell all of it at a premium price. That is not so. The imbalance is dealt with by the retailer selling at less profit. As a consequence today much goes abroad.

I see that my time is nearly up. As an ex-Whip I do as I am told--sometimes. I conclude by agreeing that there is need for a better system than one that drives farmers to despair, not through their own fault or by government action but by a combination of factors. This has been a very good debate. It is not in the interests of supermarkets to treat their suppliers badly. If they do, it will backfire on them. I am grateful to the noble Lord, Lord Rowallan, for allowing noble Lords to express their views.

8.59 p.m.

Lord Razzall: My Lords, any regular attender of this House over the past few months will realise that the question posed by the noble Lord, Lord Rowallan, has arisen in a number of different forms in at least three or four debates. Anyone who has listened to those debates will appreciate that there is a significant problem.

I do not wind up on behalf of the Liberal Democrat Benches as a farmer or with any farming background, but as a representative of the consumer interest. The case on behalf of the farming community has been well made and effective. Indeed, following the remarks of various speakers, there has been a remarkable achievement by major supermarkets. Three years ago the average consumer probably believed that most farmers were heavily subsidised, and battening on the consumer through tax subsidies and handouts from Brussels. Over that three-year period the behaviour of the supermarket chains seems to have succeeded in turning public opinion the other way round. The old adage that one never sees a poor farmer is turned the other way. The consumer now believes that one never sees a farmer who is not poor. That is a remarkable achievement on the part of the major supermarket chains over that period.

As various speakers have said during the course of the debate, we are talking about four major supermarket chains because they represent 66, 67 or 68 per cent. of the UK food market. Therefore if we are to have any serious debate on the issue, we must talk about the behaviour of those four supermarkets and the interrelationship of those four supermarkets with the farming industry.

I do not wish to go into the statistical points made effectively tonight and previously on behalf of the farming community. The case has been made strongly about the interrelationship between farm-gate prices and

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the prices for the consumer in the supermarket. I commend those who are not convinced to read from time to time the trade magazine Grower which is full of uncomfortable reminders of how multiples exercise their power over the farming community.

We have not yet heard the Minister's winding-up speech. The noble Lord, Lord Haskel, put what I understand to be the Government's answer to the points made. While he did not speak on behalf of the Government, he gave what I understand to be the Government's response. I understand that the noble Lord spoke for himself. However, I anticipate what the Minister will say: that the Office of Fair Trading is currently looking at the issue as to whether supermarkets are charging excess prices and will be reporting early in 1999. The noble Lord made some comments about whether or not there was profiteering or overcharging. It would be entirely inappropriate to prejudge what the Office of Fair Trading will say.

However, I take issue with the noble Lord on the question which has been well trailed: that the four major supermarkets have margins well in excess of those prevalent in continental Europe. He made the point that the return on capital for the supermarket chains is lower than in continental Europe. One fundamental fact differentiates us from continental Europe as regards the property market. The high cost of land for the development even of out-of-town supermarket chains in the UK significantly reduces the return on capital for the UK supermarket chain compared with continental competitors. I do not think that that is a particularly satisfactory response.

The supermarkets' response is that nothing is wrong. Those of us who have raised the issue have been lobbied. Some of the lobbying which I and others have received from the supermarket chains would have us believe that supermarkets are beneficial organisations, almost charities, providing a service to the consumer almost on a free basis. The point is exaggerated in order to make the argument. However, there are some characteristics of the industry about which the Government should be concerned. One of the defences put forward by the major supermarkets is that the shopper typically nowadays has a choice of several supermarkets within a short drive. In reality that is not normally true. Although no one, single major supermarket has more than 25 per cent. of the market, that does not apply when one considers the matter on a city-by-city or region-by-region basis. For example, Sainsbury's and Tesco's combined share of the market is 57 per cent. in London and the south. Asda is based predominantly in the north.

In agriculture the relationship between the farming community and the buyer is changing significantly. Although this point was mentioned in previous debates, not many noble Lords have referred to it today. Supermarkets are seeking control over production. Some farmers have commented that they foresee the day when a Tesco or Sainsbury's farmer will produce only what his supermarket boss tells him, including for the beef farmer what bulls to use and on what day to sell his finished cattle. The fear is that supermarkets are

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beginning to dominate the farming community and to introduce a range of vertical agreements which will operate against the consumer interest.

What should the Government do? Clearly farmers are bleeding. It is simply not enough for the Government to say that the OFT is looking at pricing; that when they have seen its report they will decide what to do; and if that is not enough they will wait for the Competition Act which will come into force in May 2000. Bearing in mind the significant public concern on the issue, action clearly needs to be taken before the year 2000.

I have three recommendations. I welcome the Minister's response to them. First, I do not think that the Department of Trade and Industry can rely on the Office of Fair Trading to consider the pricing issue. There has to be significant consideration of whether or not there is market dominance by individual supermarkets in individual cities. For example, in Cambridge everyone shops in Sainsbury's. Does Sainsbury's have market dominance in Cambridge; and what is the effect of that market dominance on the pricing policy of food in Cambridge? That issue requires strong direction from the Government. It cannot simply be left to the Office of Fair Trading to consider.

The second issue is whether or not the vertical domination of the supermarkets within the farming process is a problem. When the Competition Bill was debated in your Lordships' House, significant attempts were made to increase the powers in the Competition Bill on that vertical domination issue. Those attempts did not succeed. Nevertheless, we believe that the Department of Trade and Industry has a responsibility, in particular in the light of allegations in relation to the major supermarkets and the farming community, to look at that vertical domination.

Finally, I do not believe that it will be sufficient simply to rely on the powers of the Office of Fair Trading and the Competition Act to deal with the problem. All the evidence of the past shows that where cartels, or potential cartels, exist they will always circumvent the powers that the law will impose upon them. The Government need to take the initiative--I do not know which ministry or Minister it should be--to get together the farming unions, the farmers and the supermarkets to agree what can be done to solve the problem. The fact is that housewives go into supermarkets to buy products at this price. There would be no point in housewives doing so if the pricing policies of the supermarkets drive so many farmers out of business. Prices then have to rise.

9.9 p.m.

Baroness Byford: My Lords, I, too, thank my noble friend Lord Rowallan for bringing forward this important and timely debate. As we heard last week, farmers are indeed going through a particularly difficult time. Some are going out of business, some are struggling and others are looking with concern to the

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future of their industry. My noble friend Lord Rowallan, spoke about that issue again tonight. He asks the Government:

"what is their view of the disparity between farm-gate and supermarket prices for food products; and what steps they intend to take to redress this imbalance".

A few weeks ago, at a time when some Welsh farmers were getting only 25 pence for a whole lamb and some were taking their stock to the RSPCA and dumping them, I bought four Welsh lamb chops in a local supermarket. Those four lamb chops cost me £3.50.

I mention this as it highlights the agony being experienced by farmers. They see their local supermarket price and they compare it with the price they are obtaining at the farm-gate. So where does the blame lie, or, to put it less aggressively, why are the prices at the farm-gate so low? My noble friend has linked his Question from farm to supermarket.

It is true that the top five supermarkets, Asda, Somerfield, Kwik Save, Safeway, Sainsbury and Tesco, dominate food retailing in Britain. Between them they control half the grocery market. The remainder is split between the Co-op, Iceland, Marks and Spencer, William Morrison, discounters such as Aldi and smaller independents. Does this dominance help or hinder consumer interests? I think that most people would agree that the supermarkets have given the customer better value over recent years. But some consider that the process may have gone too far and that food quality and customer choice is being compromised for the sake of profit.

Some say that supermarkets are the consumers' best friend. They have kept prices low while dramatically expanding the range of goods offered. But that does not tell the whole story. While supermarket prices for pork, beef and lamb have stayed about the same over the past three years, farm-gate prices have plummeted.

The NFU compared prices for August 1996 with August 1998 and found that, while the farmers' share for beef had risen from 31 per cent. to 34 per cent. as consumer confidence rose following BSE, the share for everything else had dropped dramatically. Lamb went from 39 per cent. to 24 per cent., poultry and milk from 46 per cent. to 30 per cent. and pork from 42 per cent. to a mere 24 per cent.

The rapid growth of supermarkets and the closure of traditional bakeries, independent butchers and local corner shops, all add to the reduction of choice in some areas. But, from the customer's perspective, how much more convenient to be able to do your shopping in one store, usually with ample car parking space, a creche to leave your children to play in, someone to help you load your goods into the car or to provide a home delivery service. So far, the poor farmer has paid a heavy price in falling income.

Furthermore, in the past 10 years, 50,000 retail businesses have disappeared from our towns; village shops are on the verge of extinction and local producers are unable to distribute their goods or are forbidden to do so by increasingly arbitrary measures. The powers of the health department and the agriculture ministry have

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already damaged organic farmers, traders in unpasteurised milk and cheese, high street butchers and small producers of every kind.

However much we may lay the blame at the door of the supermarket, we have to accept that we also bear the responsibility for the sea change in our shopping habits. Those of us who have local shops but do not support them on a regular basis, should not be surprised if they are unable to make an adequate living. Before too long they will be forced to close, unable to compete with the supermarkets.

In the short term, when the pound is strong, cheap imports may be seen as an attractive substitute for domestically produced food which is temporarily more expensive. But, in the longer term, it will be disastrous if a significant number of domestic producers are forced out of business. Both supermarkets and customers should be aware that, as my noble friend Lord Rowallan pointed out, this scenario is not in their long-term interest.

The message to farmers must be that, since supermarkets are and will remain their largest customers in the foreseeable future, it is important that they work closely together. Farmers can strengthen their hand by closer co-operation; many have already started along this path.

For their part, supermarkets must recognise that they carry great responsibility, to customers and farmers alike. They can be a positive influence on Britain's agriculture. As the noble Lords, Lord Mackie and Lord Grantchester, said, they must accept that farmers need to achieve a proper living; that consumers expect quality and good value products, clearly labelled, from which to make their choice of purchase. Supermarkets on the whole do not buy directly from the farmer but through their suppliers and meat processors.

Sainsbury's has formed partnership arrangements with 10,000 livestock farmers. Those farmers produce animals of agreed specification for sale to their meat suppliers. The benefit to the farmers of partnership includes a guaranteed outlet for 52 weeks a year, giving them greater long-term security.

Tesco has pioneered a major initiative in partnership with its producers and is funding research to raise welfare standards in its meat and livestock products. It also commissioned an independent report to analyse the supply chain for beef and lamb. Tesco welcomed, in public, the establishment of a food standards agency.

The British Retail Consortium conducted a recent MORI survey undertaken between 6th-10th November to ascertain customers' attitude to shops and shopping in Great Britain. They considered range of goods, quality of goods, opening hours, range of extra or new services, quality of services and value for money. Their findings support customer satisfaction in all areas ranging from 88 per cent. to 61 per cent. and reaffirm that customers are continuing and will continue to shop at supermarkets.

If customers continue to demand the "better cuts" rather than using some of the cheaper meats, if demand from the Eastern countries and from Russia remains depressed and if the pound continues to be strong, there

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appears to be little that can be achieved as regards raising the price to the farmer while lowering prices on the shelves.

So what should the Government do? I have some questions and suggestions. First, will the Government push ahead and establish the food standards agency, which should have been included in the Queen's Speech? Secondly, will the Government give greater direction to the labelling of products to make sure that UK labelling is applied only to products grown and processed in this country, rather than to those grown elsewhere but processed here, to which the noble Lord, Lord Grantchester, referred? Thirdly, will the Government give more thought to the whole question of packaging, some of which is not necessary and causes additional environmental problems? Fourthly, will the Government make some commitment to ensuring that animal welfare standards set by our country and our farmers do not jeopardize our farmers to the extent that they become uncompetitive? Fifthly, as other noble Lords have mentioned, we await the response from the Office of Fair Trading, to which we look forward urgently.

I welcome the opportunity to take part in this debate. Again, I thank my noble friend for making it possible. I look forward to hearing the response of the noble Lord, Lord Hoyle. I am aware that the noble Lord, Lord Donoughue, is unwell. From these Benches we wish him a speedy recovery and look forward to debating with him in the near future.

9.19 p.m.

Lord Hoyle: My Lords, I am grateful for the comments in relation to my noble friend's speedy recovery. He asked me to apologise for not being present tonight. He wanted to be here. As everybody knows, he takes a great interest in agriculture, but I am sure he will be cheered by those words of encouragement. I am sure that everyone hopes he will soon be up and about and enjoying a drink at Christmas.

This has been a good debate and we are indebted to the noble Lord, Lord Rowallan, for raising it. It raises many issues of specific concern to farmers at the moment and draws attention to the inquiry being conducted by the OFT. I do not know whether there are four or more people examining this issue, but I shall investigate what the noble Lord said and write to him on the matter. However, I can tell him that the OFT is due to report early next year. It has been said that I cannot anticipate what it is going to say, but we all look to receiving an early reply and studying it at great length.

Everybody who spoke tonight mentioned the powers of the supermarkets and what might be done in that regard. I hope to answer many of the points raised in the course of my response. First, I agree with everyone who spoke that there is no denying the power of the big four supermarkets. We know how successful they are and, as the noble Baroness, Lady Byford, said, there is no turning back the shopping habits of the British people. The supermarkets drive a hard bargain, not only

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with suppliers here, but also with those abroad. They also demand high quality products at competitive prices and benefits come to the suppliers from that. Guaranteed access leads to large markets. It is therefore a matter of benefit for both sides.

The concern expressed in this House and wider in the media is that supermarkets are in some way "ripping off" the consumer. I must emphasise that there is no clear evidence one way or the other and that is why it is important that we receive the report from the OFT. It is fair to say--my noble friend Lord Haskel made a good point--that if the Competition Act had been in force (it is not the Government's fault that it is not in force; industry, including the farming industry, requested a delay of two years) it would have helped considerably in relation to some of the matters discussed this evening. Having said that, we have been keen to discuss the problems of the farming community with all parts of the food chain, including the retailers. Given their share of the market, they are extremely important to the producers.

It is important that supermarkets understand that it is not in their interests to drive British producers out of business. That is why we, as a government, have been seeking a way forward and why my right honourable friend the Minister for Agriculture, Fisheries and Food recently met senior members of the British Retail Consortium not only to discuss how the present market conditions affect BRC members, but also to consider whether anything more can reasonably and properly be done to alleviate the difficulties that farmers are presently experiencing.

In addition, my right honourable friend made many contacts with retailers in the course of his duties. They are aware of the problems of the farming industry. They are making efforts to ensure that their sourcing practices meet or exceed consumer expectations in areas such as quality, traceability and local supply. However, as has been said, they must also have concern for the higher standards in relation to animal welfare and the environment, which are a cost to our farmers. They have given us some assurances that, from the beginning of next year, they will demand the same high welfare standards from imported pigmeat as our own producers have to meet. They will also not accept meat from pigs that have been fed meat and bonemeal. As has been said, in addition they have given an undertaking not to sell imported meat, processed or packaged in the UK, under a British label. I believe that everyone will agree that those are valuable commitments which will benefit both producers and consumers alike.

However, retailers are but one part of the food chain. It is important that all involved in the food chain recognise their interdependence. The Government need, and are determined, to do that. We want to bring together all parts of the food chain and encourage them to discuss how they can work together because that is in everyone's interests, from producers and others in the food chain right through to retailers.

The whole supply chain would benefit from working more closely. The benefits of collaboration are urgently required for our primary producers. That is the reason

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for this debate. As we have heard, the primary producers are critical of the multiple retailers and other major buyers. We must accept that the big customers are important and that it is right that in many instances they dominate and set the trends in the market. In addition, they provide access to many millions of consumers. It has been admitted that that is a fact of business life. It is inevitable that small businesses, such as farmers, will encounter difficulties when dealing with major companies if they are not well organised. They need better collaboration. Another aim of the Government is to bring them together.

Like many noble Lords, I was particularly pleased to see the launch at the Royal Smithfield Show by my noble friend Lord Donoughue--it is unfortunate that he cannot be present--and the president of the National Farmers' Union of a joint MAFF/NFU initiative to highlight the benefits of collaborative marketing to our primary producers. Through that approach and better marketing our producers can offer the scale, quality and consistency of supply required by major buyers. Collaborative marketing means producers achieving economies of scale, having recourse to professional marketing, technical and administrative assistance, strengthening their negotiating ability, which is important given the forces against them, and improving supply chain communication. The Government fully agree with the NFU that that is the best way forward for many of our farmers. They must come together and market their produce better. They have a very good story to tell.

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I advise my noble friend Lord Grantchester that we must ensure that the labelling indicates whether something really is British. While indicating that a product is British, we must tell the story behind that and say that being British means that it is of better quality and is superior. Retailers, as well as consumers, ought to pay more for that because they are getting a better bargain.

If we can bring this together, it is the kind of initiative that will not only help the producers but everybody in the food chain including the consumer. I am delighted at the initiative of the National Farmers Union in that respect. This can only be of tremendous benefit to producers and consumers alike. I believe this is the way forward. We must wait for the report. I cannot anticipate what it will say--nor indeed would noble Lords wish me to--but I think it is right that we have this initiative.

It is also right, as has been recognised tonight in different reports, that the supermarkets do not agree with what is being said. They say, rightly, that they have to pay not only the price to the producer but other charges, including cutting of meats, transport and so forth. We are not entering into the argument here, but we say that the producers should have a fair bargain in return for all their hard work. Bringing the two together is a good thing. Better marketing must lead forward. That will benefit us, not only in this country but overseas.

I thank the noble Lord, Lord Rowallan, once again for initiating the debate. It is taking place at the right time. I hope that all sides of the industry--producers and retailers--will take note of it and that it is also noted by the OFT which is preparing the report. It can have done nothing but good.